Product Development in Islamic Banking: Challenges and Opportunities

Abstract

Product development in Islamic banking is a continuous process to keep pace with the growth of the Islamic banking industry. But the question is: what are the challenges and opportunities of it? In this paper six challenges have been identified vis a vis the opportunities have been discussed. The challenges are: (i) ensuring the maximum utilization of the principles of Shari’ah; (ii) disparity between ideal and reality; (iii) realization of Maqasid Al-Shari’ah; (iv) different interpretations of Shari’ah; (v) the reluctance of market players; and (vi) weak plan and budgetary support for product development. The opportunities show light at the end of the tunnel for those shaping the future Islamic banking. Therefore three suggestions have been made here. Those are: first, external and internal constraints inhibiting the development of Shari’ah-based products need to be alleviated. This can be done by providing an enabling institutional environment under which Islamic banks can develop products. Second, there should be a new approach to Islamic banking product innovation; research and development. Finally, a mechanism has to be introduced that creates incentives for developing the appropriate Shari’ah-based products in Islamic banking. The types of Islamic banking products shape the perceptions of customers and the community and determine the level of trust and credibility that stakeholders have for the sector in the long run.